The 2020 Mid-Year Economic Update_long

Distributors Must Hang Together – or Hang Separately

No individual distributor can fight and win in this time of disruption by going it alone.

I was recently honored to deliver a presentation to the National Association of Wholesaler-Distributors Association Executives Council at its annual meeting in Coeur d’Alene, Idaho. In the audience were more than two dozen executives who run distribution associations, including top leaders from NAW itself. One of the themes in the room was the accelerating pace of industry disruption, which, in my view, is driven by these factors:

  • Many manufacturers are taking on more distribution functions — selling directly to end users. This is enabled by rapidly advancing technologies, a growing number of logistics and delivery providers and, frankly, the eagerness of many distributors to carry less stock and rely on their suppliers for fulfillment. 
  • Generational change is occurring as millennial and Gen Z employees take on a majority of the positions in purchasing and other functions. Technology plays a huge role here, too, as these customers depend less on sales support and simply use internet tools to research and buy products. That leads them to the supplier with the best digital capabilities, which is often not a traditional distributor.
  • Outside entrants of enormous size and scale are entering B2B distribution to compete with incumbents. Home Depot, AmazonBerkshire HathawayWalmart all have B2B initiatives and Google’s marketplace now contains many thousands of products that businesses buy regularly. 

One trend I learned at the meeting that caught me by surprise was that these associations are not seeing the kinds of membership increases you’d expect during a time of industry disruption. Instead, many distributors appear to be either oblivious to the rapidly-transforming competitive environment and market or they’ve decided to go it alone. 

There’s an old story about a frog in a pot that gets cooked when you turn up the heat slowly. It doesn’t sense the temperature rising until it’s too late to act. When some of the world’s largest corporations start carrying your products and selling to your customers, I’d say they’re turning up the heat on you and you’d better jump up and get moving while you still can.

One of the ways you can do this is by networking with and learning from other distribution executives on a regular basis; joining the trade association that represents you is a great start. Additionally, for many years, NAW has effectively lobbied on behalf of the industry. If you want your voice heard in Washington these days, you need an experienced, professional team to represent you. You can bet your last dollar of inventory that those big companies I just mentioned are working hard to influence political decision makers on their own behalf.

The Distribution Revolution

Some analysts view distributors as underdogs in the battle versus the giants entering the industry. That’s fine with me — it’s always great to be underestimated entering a fight. Pluck and moxie are also part of the American legacy: the U.S. was founded by people who didn’t back away from a fight just because their opponent had most of the advantages. 

However, those colonial rebels knew better than to go it alone. The fledgling United States was made up of 13 colonies and 2.5 million people who had long eyed each other with a level of mistrust, envy and suspicion that delayed and nearly prevented unification under a single, national identity. Great Britain suffered from no such limitations. With nearly three times the population and a mature economic base, the British entered the Revolutionary War with enormous military, technological and organizational advantages. 

The Continental Army officer corps and poorly trained forces initially suffered crushing losses to Great Britain’s experienced and well-organized military, only to triumph in the end in what George Washington described as, “little short of a standing miracle.” 

Generally speaking, distributors are like those colonies — they tend to look at each other as primary rivals simply because for decades they only had to compete with each other. But the reality is that no individual distributor can fight and win in this time of disruption by going it alone. If distributors don’t join forces — at least in terms of learning from each other, establishing common industry goals and wielding collective economic and political influence — then we’re setting up for a long, losing battle. Distributors will be chewed up piecemeal as enormous and well-capitalized corporations take over the industry.

After John Hancock signed the Declaration of Independence on Aug. 2, 1776 with his now-famous flourish, he announced, “We must all hang together.” Benjamin Franklin reportedly replied, “Yes, we must, indeed, all hang together, or most assuredly we shall all hang separately."

Distributors can hang together by joining one of NAW’s many associations and fighting for their place in the industry. Or they can go it alone — and hang separately. Choose wisely. 

As always, we welcome your feedback. Feel free to comment below or email me directly at ian@mdm.com.

 

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